Hi there,

I am wondering what the best way to receive money from a family member who is neither a US citizen or resident and that amount would be greater than 100K so I believe I have to fill out a 3520 form on my US taxes.

If I receive the money as a gift all I have to do is fill out a 3520 form to tell the US government where I got the money from and I will not owe and taxes or penalties on this money... Correct? If there is anything else you can tell me please don't hessitate to tell me.

What about if I receive this money as a loan with a small amount of interest on it? Is it treated the same as receiving it as a gift? How do I go about paying it back? (will I be taxed if I transfer more than the allowable gift amount outside of the country?). Can I write off the interest if I use it towards the purchase of a home?

I am trying to figure out how to get this money across the border legitamately without getting into trouble with the IRS. I have spoken to them and they were not able to help me.

Thank you for your help.

WW

There are NO transfer taxes, either sending or receiving, so the Form 3520 is the only reporting you have to deal with the gift of over $100K.

Quote:

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Originally Posted by AtlantaTaxExpert

There are NO transfer taxes, either sending or receiving, so the Form 3520 is the only reporting you have to deal with with the gift of over $100K.

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Ok thanks for the answer. That's what I though.

Would it be the same if it was a loan?

Yes, it would.

Ok thanks for your answer. I really appreciate your help.

Glad to help!

I wonder if interest would need to be charged if structured as a loan.

The person lending the money is a non-resident alien, so any interest received is NOT taxable by the U.S.

If interest was paid by the U.S. resident, it would be considered personal interest and thus NOT deductible.

I wonder if the interest would need to be reported on Form 1042.

The family member probably would NOT have a SSN, and there is no reason I could think of for them to apply an ITIN.

There is no tax liability for the recipient of the Form 1042, so what would be the reason for generating one?

I wonder if there is a tax liability for the recipient. IRS Publication 519 provides in part:

"A nonresident alien’s income that is subject to U.S. income tax must be divided into two categories:
1. Income that is effectively connected with a trade or business in the United States, and
2. Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later).

***

Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U.S. sources but only if the items are not effectively connected with your U.S. trade or business. *** The 30% (or lower treaty) rate applies to the gross amount of U.S. source fixed or determinable annual or periodic gains, profits, or income. *** Items specifically included as fixed or determinable income are interest ***"

Let me review to see if I reading you
Right.

The OP accepts the money in the form of a loan and repays it with intetest.

He generates a Form 1042.

Then the OP pays the 30% tax as the withholding requirement.

Right

Yes, that is correct. The 30% withholding is only on the interest portion of the payments. The principal portion of the payments would have no withholding.

Of course there may be exceptions to withholding (treaty, portfolio interest), but the general rule is that the 30% tax would apply.

It seems logical, which means the OP should have his family member just GIVE him the money rather than loan it to him.

Yes, a gift would likely be better.